How to get financing for a new restaurant March 13th, 2018

How to get financing for a new restaurant

Starting out in a new venture can be difficult, and one of the biggest hurdles to starting out is financing your startup. The restaurant business can prove to be especially tricky to find finance for due to its inherent fickle nature, but if you follow the tips outlined below you are sure to be able to finance your culinary adventure.

Look for an angel investor

Startups that have been in operation for two years or more, or who show high growth potential can look into angel investors. An angel investor is someone who is interested in helping startups but in return, you will have to share partial control of your startup with them.

Unlike banks or financial institutions, angel investors are willing to invest small amounts of money into startups that are considered to be in high-risk industries, which restaurants can fall into. They often hope to gain high returns within a set period of time (usually five to ten years). Remember that you will need to be sure you trust such an investor with to keep in line with your original goals and ideas.

Corporate finance

Corporate finance is a form of finance offered by banks which allows you to buy or lease equipment and property for your business. SMEs such as restaurants will be able to use this type of finance to purchase or lease essential equipment or finance a property.

Corporate finance necessitates a credit check, so be sure that you are aware of any discrepancies on your credit record. If there are any, contact the correct credit bureaus to appeal them. To apply for corporate finance, you will need to provide a business plan to the bank, detailing what your projected success is and how long you believe it will take to reach this stage. It will also show the bank how much money you need to borrow from them.

An overdraft

An overdraft is a popular way of funding startup costs, and it is a credit option which allows you to borrow until you have reached your limit. It will usually be connected to your business account in order to keep track of how much you have spent.

An overdraft is ideal for those who need to buy equipment for their restaurant, as you only pay interest on what you spend, not the full amount. It is ideal for a short-term loan but also requires you to produce a business plan for the bank. This will allow you to calculate how much money you need to borrow. You may also be required to provide collateral in case of being unable to repay interest.

Look for venture capitalists

Venture Capital (VC) is equity funding provided by outside investors known as venture capitalists. These investors are interested in early-stage, high-potential, high-risk ventures in return for above-average returns. The VC fund makes money by owning equity in the business and also requires some form of control over some business decisions.

For relatively new companies that are too small to raise capital in the public markets, but who have a successful operating model, a venture capitalist is an ideal choice. If you are unsure of what direction to take to grow your business, the venture capitalist who has invested in your business may be able to help.

Apply for a startup loan

For many new restaurant owners, applying for a loan may be the last step they want to take. However, a startup loan is quite different to a business or personal loan. Banks offer innovative funding options to help you reach your dreams, without having to pay out too much.

You can also apply for a business-government loan in South Africa, which is a loan offered by the government to startup businesses. These loans offer much lower interest rates to banks and are offered by the Department of Trade and Industry (DTI) and its associated organisations like the Small Enterprise Development Agency (SEDA). You will have to fill in paperwork and provide a business plan to these institutions as you would with a bank.

Crowd-funding

Crowd-funding has become a highly popular manner in which to fund a business, and can prove successful for restaurants: foodies and other chefs enjoy helping out those who plan on giving them another place to eat delicious food in.

With crowd-funding, you need to be willing to ask your friends and family first for help, before you ask others, as if you are not willing to ask those close to you, is your idea good enough for strangers to fund? You can look for online platforms that allow you to create ‘money boxes’ to collect your funds in, such as the South African platform Candystick or the international platform Indiegogo.

Stay passionate

When looking for finance for your restaurant, it can be disheartening to be rejected. However, if it is truly your passion to open a coffee shop, bakery or fine dining establishment, staying passionate will come easily. Keep trying every outlet you can find and remember to stay professional at every avenue.​